Business Context and Reporting Period
Tsakos Energy Navigation Limited, a Bermuda company listed on the NYSE under TNP, provides worldwide crude oil, petroleum product and LNG transportation services. This Form 20-F is the audited annual report for the fiscal year ended December 31, 2012, prepared under U.S. GAAP. The filing does not provide a clear standalone fourth-quarter income statement; the requested 2012 Q4 period is therefore addressed through full-year 2012 results and disclosed fourth-quarter developments.
The Company operated an average of 47.9 vessels during 2012 and had 46 vessels at year-end, including one LNG carrier. Two VLCCs, La Madrina and La Prudencia, were sold in the fourth quarter. The post-year-end fleet expanded with delivery of two DP2 suezmax shuttle tankers in March and April 2013.
Financial and Operating Metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Voyage revenue | $394.0 million | $395.2 million | Down 0.3% |
| Operating income/(loss) | $1.3 million | $(37.7) million | Improved |
| Net loss attributable to TEN | $(49.3) million | $(89.5) million | Improved by $40.2 million |
| Diluted loss per share | $(0.92) | $(1.94) | Improved |
| Net cash from operating activities | $60.9 million | $45.6 million | Up 33.5% |
| Net cash used in investing activities | $(43.0) million | $(69.2) million | Lower use of cash |
| Net cash used in financing activities | $(49.3) million | $(77.3) million | Lower use of cash |
| Cash and cash equivalents | $144.3 million | $175.7 million | Down $31.4 million |
| Restricted cash | $16.2 million | $6.0 million | Increased |
| Long-term debt, including current portion | $1.442 billion | $1.516 billion | Down $73.2 million |
| Total stockholders’ equity | $926.8 million | $919.2 million | Up $7.7 million |
Operating margin was approximately 0.3% in 2012, compared with a negative operating margin in 2011. Net loss margin was approximately negative 12.5%. The filing does not present a separately labeled EBITDA measure.
- Time charter equivalent revenue was $285.9 million, and average TCE increased 7.0% to $17,163 per vessel per day, primarily because the LNG carrier entered a new charter at more than twice its prior rate.
- Fleet utilization declined to 94.9% from 97.1%; excluding the two VLCCs held for sale and largely unemployed, utilization was 98.0%.
- Voyage expenses declined 12.1% to $111.8 million, although bunker prices increased 5.5%; vessel operating expenses increased 2.6% to $133.3 million.
- Depreciation decreased 6.6% to $94.3 million. Ten vessels underwent dry-docking versus seven in 2011, and dry-docking cash expenditures increased to $7.6 million from $4.6 million.
- Interest and finance costs declined 3.7% to $51.6 million. The average loan financing cost, including interest-rate swaps, was 3.75%.
- Debt-to-capital was 60.9%, or 58.0% net of cash. The Company paid $26.6 million in dividends, equivalent to $0.50 per common share.
Material Changes Versus the Prior Comparable Period
- Revenue was broadly stable despite weak tanker markets, while improved TCE and lower voyage expenses helped operating results.
- The net loss narrowed materially, partly because the 2012 vessel impairment charge was $13.6 million versus $39.4 million in 2011. The 2012 charge related to the VLCC Millennium.
- The Company sold La Madrina and La Prudencia for aggregate net proceeds of $40.2 million and recognized a $1.9 million net loss. No vessels were held for sale at December 31, 2012.
- The Company issued 10 million common shares in April 2012 at $6.50 per share, generating net proceeds of $62.3 million. Shares outstanding increased to 56.4 million at year-end from 46.2 million.
- Debt declined through scheduled repayments, vessel-sale prepayments and new financing related to shuttle tankers. The Company had no unused amount available under its credit facilities at December 31, 2012.
- Working capital changed from positive $1.9 million to negative $51.1 million, reflecting lower unrestricted cash and the absence of vessels classified as held for sale.
- The estimated scrap value used in depreciation increased from $300 to $390 per lightweight ton, reducing 2012 net loss by approximately $0.9 million and expected to reduce 2013 depreciation by approximately $3.8 million.
Guidance, Outlook, Risks and Unusual Items
Management characterized 2013 as likely to remain difficult. It expected tanker rates to remain historically low, with possible temporary rate spikes. Management expressed more optimism for product tankers, LNG carriers and offshore shuttle services than for conventional crude tankers, citing expected refinery-related trade growth, LNG demand and offshore oil development.
- As of April 26, 2013, 16 vessels were on spot charters scheduled to expire in May 2013, while 31 were on time or bareboat charters with expirations ranging from June 2013 to June 2028. Four vessel charters were expected to expire during the remainder of 2013.
- The Company had approximately $371.8 million of remaining newbuilding commitments at December 31, 2012. Two shuttle tankers were delivered in 2013 and entered or were expected to enter 15-year charters. A third shuttle tanker contract was being renegotiated or cancelled, and the LNG carrier contract was being renegotiated with delivery expected in 2016.
- Management believed existing cash, operating cash flow and available financing alternatives would meet liquidity and working-capital needs through January 1, 2014 if market conditions remained relatively stable. It warned that a significant deterioration could threaten debt service and capital commitments.
- The Company was not in compliance with certain loan-to-value and leverage covenants because of depressed vessel values. Lenders granted waivers, generally through July 1, 2014, but $24.3 million was classified as current for remaining loan-to-value shortfalls. Loan agreements contain cross-default provisions and allow acceleration if defaults are not cured.
- Vessel values remained substantially below carrying values: estimated fleet market value was approximately $1.6 billion versus carrying value of approximately $2.1 billion at December 31, 2012. Thirty-nine vessels had carrying values above estimated market values, although management expected most to generate cash flows exceeding carrying values over their remaining lives.
- Key risks include prolonged low charter rates, tanker overcapacity, vessel impairments, refinancing and covenant compliance, floating-rate interest exposure, bunker prices, foreign-exchange exposure, environmental liability, piracy, sanctions, insurance availability, charterer creditworthiness and dependence on affiliated management companies.
- Related-party expenses totaled $35.5 million in 2012, including management fees, commissions, insurance premiums and travel services. A change-of-control termination of the management agreement could have required an estimated payment of approximately $137.5 million as of December 31, 2012.
- The Company maintained pollution liability coverage of $1 billion per incident, but acknowledged that catastrophic environmental liabilities could exceed available insurance.
Most Important Facts for Investors to Verify
- Whether charter rates and utilization improved sufficiently after 2012 to support operating cash flow and covenant compliance.
- The status, financing, final specifications and total cost of the renegotiated LNG and shuttle tanker newbuildings.
- Whether loan-to-value and leverage waivers were extended beyond July 1, 2014 and whether any additional collateral or prepayments were required.
- The actual market value and impairment risk of the fleet, particularly older vessels and the Millennium.
- The sustainability of dividends given negative working capital, substantial debt maturities and newbuilding commitments.
- Exposure to variable-rate charters, floating-rate debt, bunker prices and Euro-denominated operating expenses.
- The extent and competitiveness of related-party management, brokerage, insurance and travel arrangements.
- Whether the Company continued to qualify for U.S. shipping-income tax exemptions and avoided PFIC classification.